September 17, 2022 - The RightLine Report
Notes From The Editor
Healthy Trading Behavior
As traders we can all benefit from regular self-evaluation. Viewing ourselves objectively is a valuable skill, so long as we aren't too hard or too easy in the way we apply it. To help gain insight into your personal trading behaviors, here are a few questions to ask yourself when trading ...
Am I acting rationally and following a planned course of action? Or have I discarded my plan and started chasing after anything that moves? Am I quietly confident and present a disciplined approach toward each trade? Or am I thinking about giving up and never buying another stupid stock again? Do I buy too many shares and then sweat nervously throughout the entire trade? Or do I use a conservative approach when sizing my positions in order to avoid feeling uncomfortable as the trade progresses?
An honest exploration of your answers to these questions should help reveal the emotional components of your trading behaviors - both positive and negative. As you objectively reflect on your responses to your questions and answers, you will begin to recognize the thoughts and feelings that produce any specific action.
This method of evaluation makes you more aware of the subtle neural processes involved in creating all of your thoughts and behavior. Tapping into this internal communication process let's you make adjustments as needed to improve your effectiveness as a trader.
It's really not very complicated, although intellectually knowing the correct thing to do in a situation is not the same as being emotionally aligned with it. For example, we all know that we should practice Risk Control on every trade. This basically means that we first select our position size using the proven methods discussed on the RightLine website, place the trade at the suggested entry level, and then use stops to protect against a possible loss.
Simple enough, right? Intellectually, yes, but the first emotional challenge comes if the trade moves against us and reaches our planned stop. Now we have to make a decision. Do we accept the loss, which may have occurred very quickly, or do we give in to our emotions, ignore the stop and start hoping that the trade will turn around? As easy as it is to know that the wisest course of action is to follow the trading plan, it can be very difficult to accept when the moment comes.
At this point most traders first try using sheer willpower to force themselves to follow the plan. However, as the emotional situation heats up, the temptation to abandon the plan often prevents them from getting out of the trade immediately. While setting an automatic sell- stop in advance certainly helps, it doesn't always stop a trader from cancelling the stop when a trade goes the wrong way. We might as well face the fact that our emotions are usually more powerful than our plans.
Don't worry if this happens to you - it's completely normal. The internal conflict comes from an emotionally charged "program" which creates the avoidance behavior. It is reluctant to make changes and accept new ideas, even when the new ideas are better than the old ones. "Losing" is something that we've all been conditioned - programmed - to avoid, so taking a loss willingly is a brand new concept for most of us. Just thinking about a financial loss causes the vast majority of traders to feel uncomfortable. To make it easier to accept, you have to understand how that part of you thinks and feels about taking a loss, and then do a little "reprogramming."
Ask yourself ... Is it wise to take a small intelligent loss in order to avoid a much bigger, unintelligent loss? Now see if you have thoughts and feelings for both a yes and a no answer. "Yes, it's smarter to take a small loss, but no, it doesn't feel good at all ..." is a typical thought response which reveals a conflict between emotions and desired behavior.
This increased awareness of the relationship between thoughts and emotions enables you to change and improve the quality of the emotions that generate undesired behavior. The improved emotional state allows integration of conflicting emotions, thoughts and actions into a cooperative team. The process helps resolve inner cognitive clashes that produce unwanted behaviors.
Bottom Line: Though willpower wins over emotions initially, emotions eventually win over willpower - at least in most cases. Studies involving traumatized war veterans show that emotionally charged memories can cause unwanted behavior. The first step in the direction of improving any behavior is to first be aware of the link between your memories, emotions and behaviors. Then you can go about the process of changing any negative emotions that relate to specific memories in order to create the desired behavior.
We'll have more on the "how to" part of this subject in future Reports. In the meantime be sure to pay attention to any thoughts and feelings associated with trading related behavior that you want to change or improve.
Enjoy the weekend!
~Thomas Sutton, Editor
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 09/16 09/16 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
X 20.14 -0.16 20.6 19.12 1.48/0.74 2.02
VIR 20.02 -0.29 20.4 1.47/0.74 2.26
RNA 20.83 -0.37 21.4 19.53 1.87/0.94 2.88
KDNY 20.91 -0.65 21.47 19.91 1.56/0.78 2.36
PIXY 20.19 0.93 20.97 17.82 3.15/1.58 8.6
The "Quick List" provides a brief summary of each stock write-up and should be taken in the context of the related write-up presented in the "Stocks Covered in This Issue" section of this Report.
Be sure to read "How To Use The RightLine Quick List" and always use the RightLine Risk Control Calculator before entering any position.
For more on controlling risk go to the RightLine Risk Control System
For a glossary of terms unique to The RightLine Report go to: Glossary
Questions? Send us an email using our Contact Form.
Stocks Covered Today Stock Splits Trader's Corner
Market Summary
US stocks were lower on Friday as traders remained bearish for the third week in a row in the midst of inflationary concerns. Inflation data released this week strengthened expectations that the Federal Reserve Bank and other central banks around the globe will continue to be very aggressive with monetary policy, particularly when it comes to raising interest rates. In equity headlines, the price of General Electric (GE $66) shares dropped after the company warned that supply chain issues will negatively impact its cashflow, while FedEx (FDX $161) plunged over 20% following an earnings pre-announcement that included guidance well below expectations. Economic highlights include an uptick in consumer sentiment, though the increase was at a lower rate than predicted. Treasuries were mixed, the USD/dollar was lower, oil prices closed near even, and gold ended the session higher.
Friday On The Week
-------------------- --------------------
Dow 30,822.42 -139.40 -1329.29 -4.13%
Nasdaq 11,448.40 -103.95 -663.91 -5.48%
S&P 500 3,873.33 -28.02 -194.03 -4.77%
NYSE Volume 8.25B
NYSE Advancers 862
NYSE Decliners 2,347
Nasdaq Volume 7.64B
Nasdaq Advancers 1,415
Nasdaq Decliners 3,151
New Highs/Lows
09/09 09/12 09/13 09/14 09/15 09/16
--------------------------------------------
NYSE New Highs 36 42 17 33 18 13
NYSE New Lows 29 37 105 183 176 362
Nasdaq New Highs 48 57 37 37 25 26
Nasdaq New Lows 95 97 218 265 266 477
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "Bases Loaded?"
Success rarely comes from over-leveraging your account and putting everything on one or two rolls of the dice. Yes, high-octane homeruns are nice, but steady base hits are less risky and add up over time. Be patient - you'll get your share of points as a result of trading smart.
Take a different route than the crowd by locating low-risk trade setups and applying Risk Control to every position. Disciplined consistency may not be as dramatic as shooting wildly from the hip, but you're much more likely to hit your profit target.
The Technical Analyst
For help with this chart, be sure to read "Understanding The Importance Of Support And Resistance"
and "Improve Your Trading With Moving Averages".
S&P 500 - 3873.33 September 16, 2022
52-Week High: 4818.62
52-Week Low: 3636.85
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 4507.62
Resistance 2: 4225.42
Resistance 1: 4049.37
Pivot: 3943.22
Support 1: 3767.17
Support 2: 3661.03
Support 3: 3378.83
NASDAQ Composite - 11448.40 September 16, 2022
52-Week High: 16212.23
52-Week Low: 10565.14
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 13585.04
Resistance 2: 12631.77
Resistance 1: 12040.08
Pivot: 11678.50
Support 1: 11086.81
Support 2: 10725.23
Support 3: 9771.96
Dow Industrials - 30822.42 September 16, 2022
52-Week High: 36952.65
52-Week Low: 29653.27
Daily Trend: DOWN
Weekly trend: DOWN
Weekly Pivot Levels
Resistance 3: 35200.10
Resistance 2: 33246.14
Resistance 1: 32034.28
Pivot: 31292.18
Support 1: 30080.32
Support 2: 29338.22
Support 3: 27384.26
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): MONDAY, SEPT. 19 10 am NAHB home builders' index Sept TUESDAY, SEPT. 20 8:30 am Building permits (SAAR) Aug 8:30 am Housing starts (SAAR) Aug WEDNESDAY, SEPT. 21 10 am Existing home sales (SAAR) Aug 2 pm Federal Reserve statement 2:30 pm Fed Chair Jerome Powell news conference THURSDAY, SEPT. 22 8:30 am Initial jobless claims Sept. 17 8:30 am Continuing jobless claims Sept. 10 8:30 am Current account deficit (% of GDP) Q2 10 am Leading economic indicators Aug FRIDAY, SEPT. 23 9:45 am S&P U.S. manufacturing PMI (flash) Sept 9:45 am S&P U.S. services PMI (flash) Sept For a chart of typical Up or Down market reactions to specific major US economic reports go to: Economic Indicator Effects
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "Keep It Simple"
When it comes to trading, bigger and more complex methods aren't usually better. However, over-simplification can have the same negative effects as over-complication. When trimming back unnecessary components from your trading approach, be sure to avoid increasing risk. All successful traders maintain a balance, with most leaning toward the KISS side of the equation.
Stocks Covered in This Issue
BASIC MATERIALS SECTOR
United States Steel Corporation (X: Basic Materials/Steel) - SQUEEZE PLAY. Traders are feeling the pressure as X's intra-day price range on Friday shrunk to the narrowest spread in over a week. The tension between buyers and sellers should provide enough pent-up engergy for a breakout move in the days ahead, so get ready to trade with the new trend. To achieve that, place a BUY entry at 20.6 and a SELL short entry at 19.12. X's price movement will decide which entry is filled. As soon as you're in the trade, enter a 1.48 trailing stop. Tighten it to 0.74 after you get a 2.02 gain. X closed Friday at 20.14. Earnings Report Date: Oct 26, 2022. Beta: 2.15. Market-Cap: 4.778B. Optionable.
HEALTHCARE SECTOR
Vir Biotechnology, Inc. (VIR: Healthcare/Biotechnology) - BULLISH BOUNCE. Everyone familiar with price charts knows that a stock tends to bounce its way higher rather than move in a straight line. The lower levels of these short-term rebounds offer a safe and often early entry into stocks that are in the process of establishing longer-term uptrends. VIR's reaction to support on Friday created a Bullish Bounce setup with a BUY entry trigger at 20.4. Use a 1.47 trailing stop, which should work well with VIR's typical daily range. Tighten it to 0.74 on a 2.26 profit. VIR closed at 20.02 on Friday. Earnings Report Date: Nov 02, 2022. Beta: -0.29. Market-Cap: 2.655B. Optionable.
Avidity Biosciences, Inc. (RNA: Healthcare/Biotechnology) - SQUEEZE PLAY. A look at RNA's daily chart shows what a price squeeze is all about. The constricted high-low daily trading range has produced a setup similar to a tightly coiled spring. Expect price to move sharply soon, with the direction yet to be determined. Let the upcoming market action resolve whether you will buy shares or sell short. To capture a move either way, place a BUY trigger at 21.4 and a SELL short trigger at 19.53. Once RNA shows which way it's headed, place your triggered entry order. As soon as your order is filled, follow with a trailing stop of 1.87 and tighten to 0.94 on a 2.88 gain. RNA closed Friday at 20.83. Earnings Report Date: Nov 07, 2022. Beta: 0.88. Market-Cap: 1.086B. Optionable.
Chinook Therapeutics, Inc. (KDNY: Healthcare/Biotechnology) - SQUEEZE PLAY. Friday's trading action forced KDNY's daily price range into an abnormally narrow state. This translates into opportunity; for the cyclical nature of price volatility is to shrink extensively, then swell rapidly as shares move in one direction or another. Instead of trying to predict the direction KDNY will take when price volatility begins to increase, we'll set both a BUY (long) and a SELL (short) trigger to get us into the right trade. Be ready to BUY shares at 21.47 if KDNY moves higher, and place your order to SELL short at 19.91 if price declines to that level. As usual follow your entry with a trailing stop, 1.56 should be sufficient. Reduce your stop to 0.78 on a 2.36 gain. KDNY closed Friday at 20.91. Earnings Report Date: Nov 01, 2022. Beta: N/A. Market-Cap: 1.315B. Optionable.
INDUSTRIALS SECTOR
ShiftPixy, Inc. (PIXY: Industrials/Staffing & Employment Services) - SQUEEZE PLAY. Friday's narrow price range has created a potentially profitable setup in PIXY, as sellers and buyers find themselves in a near tie for control of price direction. The next short-term trend could go either way, so prepare for a move out of the draw within the next day or so. Set a BUY entry at 20.97 and a SELL short entry at 17.82. Let PIXY's price action determine your long or short entry. Once the order is filled, place a 3.15 trailing stop, and tighten it to 1.58 upon getting a 8.6 gain. PIXY closed Friday at 20.19. Earnings Report Date: N/A. Beta: 1.49. Market-Cap: 183.999M. Optionable.
IMPORTANT: Before entering any positions, always use the Risk Control System to determine the level of acceptable risk and the maximum number of shares to buy. Use Gap Adjusted Entries to reset the Entry Price for stocks that gap beyond recommended entry levels.
Stocks Covered Today Stock Splits Trader's Corner
Stock Splits
Below are the stocks that have announced splits and have recently executed or will execute soon. There is generally a return to normal price behavior in the weeks following a split announcement in what we call a "Dormancy Phase." As the stock nears its split execution date (Effective Date) it often moves into the "Pre-Split Run" stage where quick and sometimes dramatic gains can occur.
Announce Eff. Split
Company Name (Symbol) Date Date Ratio Options
---------------- ------- -------- ------- ------ -------
Nasdaq Inc NDAQ 7/20/2022 8/29/2022 3-for-1 Yes
Tesla TSLA 8/5/2022 8/25/2022 3-for-1 Yes
Palo Alto Net PANW 8/23/22 9/14/22 3-for-1 Yes
Split details are also available online at the RightLine Online Stock Split Calendar. For a detailed look at the different stages of a Stock Split, Click Here.
Stocks Covered Today Stock Splits Trader's Corner
Trader's Corner
Gap Adjusted Entries
The "Gap Adjusted Entry" is a technique we use to reset our entries when a stock gaps open beyond or through the recommended RightLine entry price. For those who aren't familiar with the term, a "gap open" is simply the difference between the price of a stock at the open compared to the previous day's close - either up or down.
~ How It Works
Here's how the Gap Adjusted Entry works. Let's say that a stock closes at $30, and we plan to buy it IF it reaches $32. However, the next morning it gaps higher - beyond our entry price of $32, and opens at $33. We can then apply the gap open tactic. Instead of entering immediately at $33, we wait until the stock has traded for thirty minutes. We then check the highest price that the stock traded at during that thirty minutes, and re-set our entry point to just above that level.
~ How Much To Adjust
The amount to adjust the entry is usually 0.25 for stocks priced up to $50, 0.50 for stocks from $50.01 to $100, and 1.00 for stocks over $100. Once the price is reached, we enter our trade.
It's as simple as that. If the stock has "real" buying behind it, prices will first gap up at the open, dip down as day-traders grab a quick profit, then turn around and move higher. By waiting until the first thirty minutes of trading is past, we avoid buying at what is very often the high of the day.
~ Example of a Buy Entry - (Long)
Take a look at the example below. The original entry price is set at $32.46. On March 28 GIVN closes at $32.20 - beneath the planned entry level. The next morning GIVN gaps open above the planned entry level. This is where the Gap Adjusted Entry technique comes in. The high for the first 30 minutes of trading on March 29 is $33.77, so the original planned entry is adjusted to just above that level. The new Gap Adjusted Entry is set at $34.02. Later in the session price moves up to the new entry level, triggering the trade.
~ A Common Misinterpretation
On several occasions we've received feedback from traders who have applied the Gap Adjusted Entry incorrectly. To help clarify what NOT to do, let's review a common error.
Here's the mistake. Buyers noted the high of the first 30 minutes and then immediately placed a bid to buy at 1/4 point higher then the high of the day - even though the stock had dropped and was currently trading much lower. This meant that their open order was filled immediately at the higher price, WAY over the current bid and ask price. You can bet that some seller was very pleased!
There is an easy way to avoid this - just wait to see if the stock continues to go higher BEFORE placing the order. If you are unable to wait for the market to move higher, just enter a "buy stop order" using the Gap Adjusted Entry price. A "buy stop order" is held by your broker until the stock price rises to your specified stop price, at which point it is executed at the market price.
~ Gap Adjusted Entries for Shorting
For traders who like to sell short, the Gap Open Tactic can also be used effectively when stocks gap lower. Simply wait 30-minutes, then adjust the entry level to just BELOW the suggested short entry price. Subtract the same adjustment amount that we used with long positions - 0.25 for stocks priced up to $50, 0.50 for stocks from $50.01 to $100, and 1.00 for stocks over $100.
~ Example of a Short Sale Entry - (Short)
Take a look at the chart of IGT below. In this example the original entry price - a short - is set at $46.14. On April 21 IGT closes at $46.57 - beneath the planned entry level. The next morning IGT gaps open below the planned entry level. This is where the Gap Adjusted Entry technique comes in. The low for the first 30 minutes of trading on April 22 is $44.09, so the original planned entry is adjusted to just beneath that level. The new Gap Adjusted Entry is set at $43.84. Later in the session price moves down to the new short entry level, triggering the trade.
~ Summary
RightLine traders have found that the Gap Adjusted Entry method helps avoid being "top picked" on long entries - buying into a reversal near the session high. It also reduces the likelihood of being "bottom picked" when going short. Like any system, method, tactic or strategy, the Gap Adjusted Entry doesn't work all of the time. However, it does offer traders and investors an intelligent alternative when your original entry is lost in the gap.
A simple yet powerful tool, the Risk Control Calculator helps you manage risk by recommending a maximum number of shares to purchase. Available in the RightLine Member's Area.
Disclaimer
The RightLine Report is an information service for investors and traders. It is not a solicitation nor a recommendation or offer to buy or sell securities. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The publishers of The RightLine Report are not brokers or financial advisors, and are not acting in any way to influence the purchase or sale of any security. Stock picks, entry points and exit points should be considered an information resource to assist the trader in developing a trading plan and it is the sole responsibility of the reader to conduct his or her own due diligence before executing a trade. Trading securities should be considered speculative with a high degree of volatility and risk.
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